KUALA LUMPUR (July 7): Shares in rubber glove counters were mixed this morning after rubber glove manufacturers temporarily halted operations in their Klang factories due to the Enhanced Movement Control Order (EMCO) in the district.
Shares in Top Glove Corp Bhd were trading 0.76% or three sen lower at RM3.91 per share at 9.28am, valuing it at RM32.17 billion. Meanwhile, shares in Supermax Corp Bhd were down 0.96% or three sen at RM3.11 per share, translating into a market value of RM8.46 billion.
However, shares in Hartalega Holdings Bhd were up by 1.27% or nine sen at RM7.15, resulting in the counter now carrying a market value of RM24.58 billion. Kossan Rubber Industries Bhd shares were also 0.33% or one sen higher at RM3.06, yielding a market capitalisation of RM7.83 billion.
Among the smaller rubber glove counters, Comfort Gloves Bhd was unchanged at RM1.94, Rubberex Corp (M) Bhd was up by 0.6% or half a sen at 84 sen, while Careplus Group Bhd was 1.2% or two sen higher at RM1.69.
In a note, Hong Long Investment Bank (HLIB) said the closure would impact 23 of Top Glove’s factories (55% of its total capacity).
“As Hartalega and Kossan’s factories are predominantly located in Selangor, which is mostly under EMCO, we reckon the impact on Hartalega and Kossan’s sales volumes to be more pronounced.
"We view this as a minor hiccup for the glove industry, as the [lower] production volumes would result in a near-term shortage in global glove supply. Notably, MARGMA estimates that Malaysia accounts for 60-65% of the total glove supply globally. As a partial offset, we expect the short-term shortage in glove supply to slow down the decline in glove ASPs in 2H21,” it noted.
The research house also lowered its earnings forecasts on Top Glove, Kossan and Hartalega. Top Glove and Kossan’s FY21 forecasts were down by 6.1% and 8.6% respectively, while Hartalega’s FY22 forecast was down by 9.2%. The lower earnings predictions were done to account for lower sales volume.
As such, HLIB has cut its target prices (TPs) on Top Glove to RM6.66, from RM6.72, Hartalega to RM13.74, from RM13.85, and Kossan to RM5.48, from RM5.54.
“We value the glove companies using their pre-pandemic five-year average PE multiple of (CY15-19) based on sustainable earnings in a post-super normal earnings environment summed with free cash flows (both discounted back to PV) generated during the boom period.
"This encompasses earnings in a post-pandemic era as well as high profits generated during the pandemic. Our top pick remains Top Glove (buy, TP: RM6.66),” it said, while also highlighting that it has maintained "buy" calls on Top Glove, Kossan and Hartalega.